Bessent's Buyback Push Fails as 30-Year Yield Holds at 5.25%

Treasury Secretary Scott Bessent's expanded $4 billion bond buyback program failed to hold long-end yields, with the 30-year Treasury at 5.25% and the 10-year at 4.7% after erasing Wednesday's relief rally.

"We're trying to signal that we think that this is a thinly traded area of the market," Bessent told CNBC on Thursday, adding that buybacks "could be more than $4 billion per issue."

The 30-year yield hit a 19-year high of 5.33% on Tuesday before the Treasury doubled its buyback ceiling. Oil prices surged more than 7 percent this week with Brent back to $94 a barrel, while gold gained about 3.5 percent and the dollar weakened. Walmart's same-store sales growth slowed to 2.6 percent, the lowest in six years, with traffic growth halving to 1.5 percent.

The cross-asset moves point to a market repricing of stagflation risk. Goldman Sachs' Rich Privorotsky, head of single Delta trading, said the market "smells of stagflation." With the Jackson Hole symposium approaching and new Fed Chairman Kevin Warsh facing a policy dilemma, the Treasury's toolkit may be running out of room.

Bessent defended the intervention, saying the Treasury has "a big toolkit" beyond buybacks and that the operation amounts to a "Treasury twist" — making a market in long-dated bonds where liquidity is thin. He previewed a fiscal consolidation announcement from President Trump, with OMB Director Russ Vought and himself examining both revenue and cost sides. He dismissed the $40 trillion national debt milestone as "nothing magic," arguing the US can "grow our way out of that."

Bessent cited the deficit-to-GDP ratio at 5.7 percent for calendar year 2025, down one percentage point from the Biden administration's record, and said tariff refunds that inflated the deficit were temporary. He also pointed to the vice president's fraud task force, which he said could save "several hundred billion dollars."

But investors were not reassured. Krishna Guha at Evercore ISI dismissed the plan as "a weak form of Operation Twist" that risks backfiring if read as a sign Washington is struggling to fund itself cheaply. JPMorgan's Maia Crook warned the intervention "belies the underlying structural challenges and does nothing to address them," risking a lasting cost: a Treasury seen abandoning its pledge of steady, predictable debt issuance.

Stagflation Signals Spread Across Assets

The stagflation signals extend beyond bonds. The 10-year breakeven inflation rate has risen nearly 10 basis points over the past two weeks, the gold-to-copper ratio is climbing, and a "stagflation basket" tracked by Goldman gained 6.7 percent this week. Privorotsky described the US economy as "dumbbell-shaped": AI and data center buildouts absorbing massive capital on one end, consumer spending weakening on the other.

Walmart's management warned that when gasoline prices rise above $4 a gallon, consumers begin adjusting spending. Brent crude at $94 reflects the Iran conflict premium, which Bessent acknowledged: "We will get on the other side of this. We don't know when."

Bessent argued the market is mispricing risk. "People have bad information. I have asymmetric information," he said, suggesting the Treasury's intervention signals knowledge the market lacks. He pointed to core inflation trending down, wage growth cooling in hospitality, and the largest pharmaceutical price decline on record as evidence the underlying economy is sounder than bond yields suggest.

The last time the 30-year yield traded near these levels was in 2007, before the global financial crisis. The Treasury's previous buyback program, launched in 2024, was designed to improve liquidity in off-the-run securities — not to manage yields. The shift to yield management marks a departure from the Treasury's long-standing principle of predictable, regular debt issuance.

The Jackson Hole meeting next week will be the next test. Privorotsky said whether Warsh signals dovish or hawkish, the market faces a dilemma: dovish could push long-end rates and inflation expectations higher, while hawkish could further suppress already-cooling consumption. The Fed faces a problem where inflation hasn't fully retreated but growth is already under pressure.

This article is for informational purposes only and does not constitute investment advice.